But Communities Secretary Ruth Kelly, whose department is drafting part of the new Equality Act, is a staunch Catholic and is understood to back an opt-out for church agencies.

Prime Minister Tony Blair has promised a decision in the next few days.

The head of the Catholic Church in England and Wales, Cardinal Cormac Murphy-O'Connor, has warned agencies may close rather than accept gay couples as prospective parents.

'Damaged children'

Speaking on BBC1's Sunday AM programme, Mr Davis said the right to protection from discrimination and to exercise religious views must be balanced against children's right to the best available adoption service.

"They are very badly damaged children and actually the Catholic Adoption Society is the best to do that," he argued.

Mr Davis stressed he was setting out his own view and there was "no party line" on the issue.

He said he would "almost certainly" vote against moves to deny an exemption, adding: "I think there is a better compromise available."

Mr Davis, founder of the Conservative Adoption Forum, continued: "If the consequence of this is actually we end up with a worse adoption system then that's a reason to come back to this and say perhaps this is not the right answer, we should do something else or find a better compromise."